The reality of Russia's wartime economy

A wartime economy is a state of production where a nation shifts its industrial capacity and financial resources primarily toward military output, often at the expense of civilian consumption and long-term infrastructure. While Russia’s headline GDP figures have shown unexpected growth, the underlying reality is a bifurcated system where military-industrial sectors thrive while the broader civilian economy faces significant, mounting pressures.

Recent data indicates that Russia’s GDP grew by 1.3% year-on-year in the second quarter of 2026, a figure that exceeded official government and central bank projections (CNBC, 2026). However, analysts argue this growth is heavily concentrated in defense-related sectors, masking deep structural imbalances that threaten long-term stability.

How does the two-tier economic system function?

A two-tier economy occurs when specific industries—in this case, defense and tank production—experience rapid growth due to state subsidies, while the civilian sector suffers from stagnant investment and high inflation. This divide creates a stark contrast between workers in the military-industrial complex and those in the general labor market.